Gold analysis from a talented metals trader.

Five of the larger bankers or fund analysts said today they expect the year to closeout at S&P 1350. Keep in mind they need the higher pumped-up numbers to close out their books on higher prices and more importantly to them, their annual bonuses are predicated on a higher close-out. This is why at the latest in the fall, November 1 is the big buying day cycle for the last quarter. For these fund managers and brokers this is like opening day in baseball. WE DO NOT INTEND TO FIGHT THEIR MASSIVE LONG TRADES. SHARE PRICES ARE GOING UP IN THIS QUARTER BARRING SOME UNFORSEEN BLACK SWAN ACCIDENT – traderrog.wordpress.com Roger Wiegand
A friend of mine, a professional trader who has spent the last two decades trading gold, silver, platinum and palladium for large bullion banks and for his own account, sent me his latest analysis on gold:Todays high has run into 2 resistance trend lines:Red: trend linking series of lower highs Green: trend linking the trigger/inflection point ( $1705.40*) / where & when Gold “broke down”… the 1680’ish level been all the talk recently as short term investors looked for a momentum-led break above $1700. Unfortunately, Asia didn’t have the firepower and so GCZ1 is back down (as weak longs bailed) to $1660s levels It’s definitely a congested area (from Sept 27th high of $1679.20 – todays high of $1686.70) and feels as though someone is sitting on Goldit was the low of the 1st > $100 intraday flush out seen in Aug. Once that broke on 2nd $100 flush (breakdown day on Sept 23rd),we’ve never been able to regain that level.

Yesterday, China’s yuan strengthened the most since the currency’s July 2005 revaluation, to the strongest closing level since 1993. It came just one day before todays final US Senate vote on the (controversial) currency bill, allowing US companies to impose import duties to compensate for the undervalued yuan. Some notes; relevance to Gold:– They’re (slowly?) moving to appreciate the currency (amidst increasing pressure fro US) and sap liquidity / rein in inflation. However, revaluing the currency, while necessary, alone it isn’t sufficient (need RRR hikes) — the FX pile is unmanageable and (indirectly) tied to US monetary policy / USD weakness. Graph 1 shows Gold vs. China’s FX reserves – both 1 directional…– Will there still be a Chinese spec bid in Gold? The last time there was a flurry of news headlines about the strengthening yuan was Aug 11th (Yuan Strengthens Beyond 6.4 Per Dollar for First Time) — > Gold hovered around $1750 thereafter, before leaping through $1900 printing a record in just 7days (you decide on causation / correlation…). The headlines didn’t seem to have the same effect as a Chinese RRR hike, which is bearish Gold (and other commodities) in the short termPhysical demand, especially from the East, has been incredible strong recently. Shanghai Gold premiums (over loco London) reflects this strength in demand, where the premium has (reportedly) traded at $10 premium to London over the past month (at times reaching up through $20). If locals expect a reval surely they’d wait to buy… If this is the case, which seemed to occur in Aug 11th “reval”, then Golds got some potential upside targets to take out…– Overall, small incremental appreciation of the currency doesn’t seem to have short-term / immediate bearish effect on Gold, like RRR hikes does. As long as the Shanghai premium remains largely robust indicating Chinese buying, their FX pile continues to expand, and RRR hikes are few n far between (last 1 was this June; its been rather dormant) Gold market for now seems rather immune to inflation fighting tools employed by China. The commodity has sort of become a tool itself — hot spec money is channeled into Gold, the best form of idle capital, sapping liquidity from the system instead of being channeled into stocks/properties etc… Graph 1: Panel 1:China’s FX reserves vs. Gold Panel 2: CNY

Renminbi stages biggest one-day jump in six years
John McDermott on Oct 10 22:28.China engineered the biggest one-day appreciation of the renminbi in years on Monday, delivering a strong conciliatory message to American lawmakers who have been debating whether to punish Beijing for holding down the currency’s value, reports the FT. The renminbi rose 0.6 per cent against the dollar, the largest jump since July 2005 when China ended a formal peg and ushered in a tightly managed exchange rate float that, for most of the time, has seen the currency appreciate in steady but tiny increments.
Where is the dollar headed from here? Up or down? Our friend Jeff Clark presents the strong dollar view:Over the past five weeks, the U.S. Dollar Index has gained 5%. That may not seem like much of a move for a stock… But for a currency, it’s huge.The dollar has gone from near its low for the year to near its high. Most other assets have done just the opposite. Over the past week, other assets have caught a bid while the dollar has pulled back. This action has a lot of folks calling for the resumption of the dollar bear market.Not so fast. The dollar still has one more move left.Take a look at this chart of the U.S. Dollar Index…

The chart is forming a potential “bearish rising-wedge” pattern. This pattern normally breaks to the downside and retraces at least 50% of the previous rally. When the dollar finally starts to fall, it should happen fast.But it’s not ready just yet.Notice the moving average convergence divergence (MACD) indicator at the bottom of the chart. This is a momentum indicator that measures the strength or weakness of a trend. It has been rising with the dollar for the entire move higher. This tells us the trend is strong and likely to continue.But notice that the MACD indicator is beginning to roll over. On the next move higher for the dollar, the momentum is likely to turn lower. This will create the “negative divergence,” a warning sign that often precedes a change in trend.Also notice how the U.S. Dollar Index has obvious resistance at its early 2011 high point of about 81. One more push higher will prop the index up closer to the resistance level and mark a more reasonable turning point.Since most asset prices have been trading opposite to the dollar lately, one more push higher for the greenback means gold, oil, and stocks will probably have one more push lower.Investors will have one more chance to get into stocks ahead of a year-end rally. If you missed the move last week, keep an eye on the dollar. Be ready to buy stocks when the greenback makes one more push up toward resistance at 81.Best regards and good trading,Jeff Clark
Steve Sjuggerud, on the other hand, is dollar bearish. His argument is as follows – There is nobody left to buy the dollar. Everyone is already long. Anyone who wants it has already bought it. When investor sentiment surrounding the dollar is this high, it usually turns and heads down. Also, the sentiment for the euro and yen are rock bottom and that usually indicates a turnabout is near.

Steve says:The U.S. dollar is not a good value right now… paying no interest. It is widely loved as a safe haven, at the moment. And so far in October, the U.S. Dollar Index is down. So the trend might be starting to confirm the fundamentals.It’s the opposite of the three things we look for in an investment: cheap, hated, and in an uptrend.With history as our guide, the U.S. dollar index could lose 5%-10% of its value over the next two months.But what’s the best way to bet against the dollar right now? Do you actually want to buy the euro?No. The safest way to bet against the dollar is to own gold. When the value of the dollar falls, the value of gold (priced in dollars) goes up.We’re seeing our favorite signs line up for a coming fall in the U.S. dollar over the next two months… Trade accordingly.Good investing,Steve
So which position do I take? It’s YOUR choice! But one thing is for sure, the dollar, as a store of value “long-term” is not my choice at all. Taking short-term positions is akin to gambling and I do not gamble.

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